I discussed in my last post the uncertainty that many entrepreneurs and CEO’s feel about their technology investments due to a lack of understanding of the technologies themselves.  I’ll address how to think about these technologies in a future post. 

Before a leader decides what technology to invest in, he must first clarify a critical question. Whose problem are you truly trying to solve?    

Don’t Come Up With a Solution Before You Know the Problem

Many companies believe they are trying to solve a client problem … but, are just trying to remedy their own pain points.  Often, a company may decide on a desired outcome (we need to be investing in AI!).  Only then do they come up with a client problem that might be conveniently solved by the pre-decided outcome.

This presumption-of-problem is not unique to the corporate world.  I think most of us do this in our own lives as well.

I’m Cold, Put on a Jacket!

For example, for all of this past winter, my 11-year-old son, Caleb refused to wear a jacket.  He insisted that his sweatshirt from his favorite YouTuber was warm enough.  Every morning there was a fight before the bus came.  I told him he needed to wear a jacket because it was going to be freezing outside.  And, every morning, my son refused, maintaining that he wasn’t cold.

One morning, in the middle of our daily “debate,” my son said — Dad, it’s my body — I know if I’m cold or not.

A moment before, I would have sworn I was trying to solve my son’s problem.  After all, I didn’t want him to get cold!

However, at that moment, I realized that I wanted my son to wear a jacket to solve my problem.  I wanted to think of myself as a responsible father.  Or, probably more accurately, I didn’t want the bus driver, or his teachers to think that I was an irresponsible father.    

I had thought I was trying to solve my son’s problem.  But, when I truly considered the situation, my primary drive was to solve my problem.  If my son wore his jacket, I could think of myself as the father I wanted to be.  

Technology Battle Cry

I think many companies do the same thing when it comes to tech initiatives.  The proclamation is made.

“We are no longer a finance company, we are now a technology company.” 

“We will invest in the most cutting edge technologies! AI, big data, predictive analytics, robotics, virtual reality, anti-gravity boots, and shrink ray lasers.  We will disrupt the industry and become the ‘go-to’ bank for customers of the future.”

Unfortunately, there can be a trillion-dollar chasm between “investing in technologies” and “becoming the go-to bank for customers.” 

I believe this chasm can be bridged with the simple question — whose problem are you trying to solve?  

If your initial answer is – your customers, are you sure?  Have you spent time in conversation with them (not just reviewing online surveys)?  Do you understand what is currently frustrating them?  Where there is friction in their experience working with you?  Or, have you just decided that you want to be a technology disruptor … and just assumed that somewhere down the road, you’ll trip over becoming a customer magnet?     

The Trillion Dollar Chasm

A recent Accenture study analyzed 161 banks who had invested a combined $1 trillion in technology over the past 3 years (yes, that’s trillion with a “t”). 

The study divided these banks into 3 groups:

a) “Digital Focused” banks fully committed to digital transformation,
b) “Digital Active” banks that had started down the path of digital transformation 
c) “The Rest” — all the other banks who had not yet shown a real commitment to digital transformation. 

The report then compared the financial results of the groups over those 3 years to assess the impact that a technology-focus has on a bank’s performance. 

I’m going to pause for a moment and ask you to play a guessing game.  If you were to guess how much more quickly revenues grew for the Digital Active companies compared to The Rest, what would you say?  100% faster revenue growth? 50% 25%?  

Perhaps you’ll reason that it might take time for the tech investments to pay dividends, so maybe the “Digital Focused” banks grew revenues only 10-15% faster than “The Rest?”   

Well, you’d be wrong.  The Digital Focused banks grew revenues and assets about 40% more slowly than banks in The Rest!  

Overall, the Digital Focused banks still outperformed the other 2 groups in terms of return on assets and return on equity because they slowed their rate of expense growth.  The Rest continued to grow expenses at historical rates.   

Where’s the Hockey Stick Growth?

The controlling of expenses is certainly laudable and a great accomplishment.  But, I found it shocking that these tech-focused banks lost market share in terms of assets and revenues?  How is that even possible? Doesn’t technology naturally lead to hockey stick growth trajectories?

Let’s pause again for a brief imagination exercise:  

Rewind the clock by 3 years.  Imagine you are the CEO of a large bank, sitting in a boardroom.  You are surrounded by the leadership of your technology and operating divisions.  The proposal at hand — should we invest $50 billion over the next 3 years in an ambitious digital transformation strategy?  

As you look up at the powerpoint presentation on the screen, what do you think the projections are for revenue growth as a result of this tech investment? 

Would you be satisfied if you knew that over the next 3 years, you might lose market share to the banks who were not investing tens of billions of dollars in technology? 

Or, is your expectation that this tech investment will lead to accelerating revenue growth from new customers who are attracted to an increasingly digital experience and new revenue drivers from businesses you can’t even imagine yet. 

Of course, we can’t be sure of what that CEO was expecting.  But, I’d have to guess that the results to date are somewhat underwhelming. 

Conflating Problems

So, what happened?  

I think that at least part of the answer lies in the fact that these banks conflated their problems with those of their customers’.   

For example, in 2016, $21 billion was invested by banks in big data.  This number was projected to grow to $140 billion in 2020. Why are banks investing in big data?  

In JP Morgan’s 2015 Annual Report, the bank provides several examples of how it anticipates utilizing big data:

  1. Improvement in sales prospecting with more complete contact information of potential customers
  2. More targeted marketing 
  3. Operational efficiencies, like avoiding errors in calculating net asset values of funds
  4. Operational intelligence 
  5. Fraud security surveillance, which will “even protect against employee fraud and bad behavior”

All these things are great.  But, the chasm is evident in the first 2 items. 

Better sales tools and better marketing were supposed to enable the bank to offer the right services to the right prospects at the right time.  Isn’t providing the right banking products to customers who need them solving a customer problem?

Maybe or maybe not. But, what is driving the initiative is solving the bank’s problem of wanting more customers, more assets, more revenues.  To say that there are customers in the world who want our services and are just waiting to be targeted appropriately — would probably be an example of inventing a convenient problem to justify the desired result.  

To be clear, there is no problem with a company investing in technology to solve its own problems.  But, even then, leadership needs to understand exactly which individuals they are trying to impact with the technology and spend time speaking with those people to ensure that the solution actually addresses their problem.     

Technology is absolutely a tool for exponential growth and industry transformation.  But, entrepreneurs and executives will only see the impact they desire if they take a targeted approach, starting first with the question of whose problem they are trying to solve.     

What Next?

Of course, the next question is: how do you determine whose problems you should try to solve with a technology initiative?  We’ll start to explore that topic in my next post.